Legal Briefing

TMT | 01 July 2012

As a result of widespread and rapidly increasing use of the internet in the People’s Republic of China (with over 500 million users, China has the largest internet-using population in the world)1, there is already a great deal of jurisprudence relating to intellectual property infringement and the internet. Although decisions of the courts in China do not establish binding precedents, trends are emerging in relation to the liability of search engines2, and other service providers such as trading platforms and social networks, for trade mark infringement.

This article reviews the relevant law and recent case decisions, and looks at some of the steps that are being taken by service providers to reduce the risk of infringement.

DIRECT LIABILITY

Provisions dealing with primary, or direct, liability for trade mark infringement are to be found in the Trademark Law.

Search engines, such as Google or, in China, Baidu, sell keywords to advertisers or subscribers (which may be either individuals or companies). Because the prevailing view in China is that it is not the search engine, but the advertiser or subscriber, who ‘uses’ the keyword in a trade mark sense, the search engine will not usually be held liable for direct trade mark infringement.

Although use by the advertiser or subscriber will not necessarily constitute infringement, even where the keyword is a trade mark belonging to a third party, it will if it is likely to lead to confusion. On the basis of relevant Supreme Court judicial interpretations, confusion is, in practice, required in China when dealing with similar marks. Establishing confusion will be easier where the keyword and the trade mark are identical, but, in some cases, the Chinese courts seem ready to find infringement in these situations anyway eg they have found an advertiser liable on the basis of a keyword purchase alone, based on the Anti-Unfair Competition Law, without apparently considering whether there has in fact been confusion.

INDIRECT LIABILITY

The law

While a search engine may not be held directly liable for trade mark infringement, it may be indirectly liable. Indirect liability is not, however, specifically referred to in the Trademark Law; provisions relating to indirect liability are to be found in the General Principles of Civil Law and the Tort Law.

Article 31 of the General Principles of Civil Law states that if:

‘… two or more persons jointly infringe upon another person’s rights and cause damage, they shall bear joint liability’.

Article 36 of the Tort Law provides:

‘Where a network user commits a tort through the network services, the victim of the tort shall be entitled to notify the network service provider [which includes a search engine] to take such necessary measures as deletion, blocking or disconnection. If, after being notified, the network service provider fails to take necessary measures in a timely manner, it shall be jointly and severally liable for any additional harm with the network user.

Where a network service provider knows that a network user is infringing a civil right or interest of another person through its network services, and fails to take necessary measures, it shall be jointly and severally liable for any additional harm with the network user.’

This safe harbour provision has two ‘limbs’ for network service providers – notice and knowledge. In practice, both boil down to whether the network service provider ‘knows’, whether pursuant to a notice or otherwise, that a user is infringing. Once a network service provider has the requisite knowledge, it must take measures to delete or block the infringing material.

Actual or constructive knowledge?

Chinese statute law is not clear as to whether ‘knowledge’ is restricted to actual knowledge, or whether it can include constructive knowledge. Case law, however, suggests that ‘knowledge’ can include both actual and constructive knowledge.

In recent years, there have been nine court judgments concerning search engine liability for trade mark infringement resulting from the use of keywords. Seven of these cases involved the Chinese search engine, Baidu, and two involved Google. Among the seven Baidu cases, Baidu was found to have infringed in only two. In both cases (in the Shanghai and Beijing Intermediate People’s Courts), the key liability issue was whether Baidu had ‘knowledge’ of the infringement.

In the first (in 2008), the Shanghai court found:

Baidu’s ’paid listing’ service differed from the ‘natural listing’ service of a normal search engine, and imposed a higher degree of responsibility on Baidu.

Baidu required subscribers for ‘paid listings’ to submit keywords ‘for review’. As a result, it was in a position, and under an obligation, to review the legality of the keywords.

Where the keyword was also a mark with a high market reputation, Baidu should have taken further steps to determine the subscriber’s right to use the keyword. In the Da Zhong case (Volkswagen in Chinese), for example, Baidu should have taken steps to determine whether the subscriber had any connection with Volkswagen.

In the second (in 2010), the Beijing court went into more detail in relation to Baidu’s failure to conduct a proper review.

Baidu ranks results by the price paid for keywords, so it is not a neutral, technical process. Services of this kind, beyond normal search engine optimisation, imply a higher level of responsibility to ‘censor’ the results.

Baidu states in its ‘general policy’ that keywords must pass its review before use. This review should include whether or not the keywords infringe another’s right. Therefore, Baidu was at fault.

Although the court in this case did not deal specifically with the knowledge issue, it can be inferred that Baidu was considered to have had constructive knowledge of the advertiser’s infringement.

In the five cases in which Baidu was held not liable for infringement, it was found on the facts that it had not selected, added, or recommended keywords for the subscriber, or induced the subscriber to use any particular keywords, and that, on becoming aware of the infringement, it had discontinued the services it offered to the subscriber.

In these cases, Baidu’s ‘paid listing’ service was found not to be a trade mark-related service, which meant that Baidu had very limited ability to review trade mark issues. Its censorship obligation was primarily concerned with illegal content such as materials related to drugs, gambling, pornography etc, not with trade mark infringement. Further, Baidu’s general policy required that subscribers themselves must ensure that their keywords were legitimate, which meant that Baidu did not have to do so. The Court suggested that, for very well-known marks, there might be some additional obligation on Baidu to check whether a keyword purchase might involve a trade mark infringement, but this was not a factor in these five cases. Lastly, on the facts, no ‘knowledge’ of the infringements on Baidu’s part could be proved by the claimant.

Google was found to have infringed in only one of the two cases in which it was involved (both from 2010, prior to the company’s departure from China). In the Le Tao case, the Beijing Haidian District Court said there was not sufficient evidence to prove that Google should have known of the first defendant’s infringing use of the ‘Le Tao’ trade name as a keyword. In the Lv Dao Feng case, the Guangzhou Intermediate Court took the unusual view that Google’s service was an advertising service so Google had an obligation to review keywords for trade mark conflicts.

COMPARISONS WITH LIABILITY ISSUES CONCERNING ONLINE TRADING PLATFORMS

Liability issues for trading platforms (such as Taobao in China) are similar to those faced by search engines. Trade mark infringement by trading platform users may be through the use of trade marks as keywords or simply through display of the infringing trade marks on the user’s page within the trading platform site. Providers of the trading platform services may, in turn, attract indirect liability for these infringements.

Although the legal principles in play are very similar to those considered in relation to search engines, the courts have interpreted trading platforms’ legal liability for indirect trade mark infringement slightly differently.

When considering secondary trade mark infringement in this context, they have, in practice, adopted concepts and factors derived from laws that are usually considered in copyright cases eg the Regulations on the Right to Dissemination over the Information Network (the so-called Internet Regulations).

A service provider’s ‘notice and takedown’ policy should help enable it to take advantage of the ‘safe harbour’ from liability provided by the General Principles of Civil Law and the Internet Regulations. It should, however, be noted that, although it may be a useful piece of evidence of ‘knowledge’, issuing a takedown notice to a service provider is not an absolute pre-condition to indirect liability. Put another way, from the service provider’s point of view, a notice and takedown policy may not be a sufficient safeguard against secondary liability: the benefit of the safe harbour provisions may still be lost if there are other factors that indicate that the service provider had actual or constructive knowledge that an infringement may have been taking place and failed to take steps to prevent it from continuing, when it could have done so. Factors that may be relevant include:

whether the service provider is running a ‘professional’ service (ie whether it has any specialisation in a particular area relevant to recognising an infringement);

whether the service provider is providing a neutral, technical service, or acting outside the scope of pure technical support;

whether the policy of the service provider creates any ability or obligation for it to review keywords or user-generated content for potential infringements;

whether the service provider gains a financial reward from the service (usually the higher the profits, the higher the level of diligence that would be inferred);

the volume of users compared to the capacity of the service provider, ie would it be reasonable to expect the service provider to review for infringements taking place over the service, both from a technical and a human resource point of view?; and

whether the trade marks involved are highly reputed in the market or not.

In a second instance judgment issued by the Shanghai Intermediate Court in April 2011, the court held online B2C and C2C trading platform Taobao jointly liable (with a seller on its platform) for trade mark infringement as a result of not having taken further steps to block the account of an infringer against whom complaints had been filed with Taobao on seven separate occasions. Despite the fact that Taobao took down the infringing links each time it received a complaint, it could and should (according to its own policy) have done more to prevent the infringer infringing further, and was thus deemed to be condoning the primary infringer’s acts of infringement.

JURISDICTION ISSUES

A judicial interpretation on internet-related cases states that cases should be filed in the place where the defendant or one of the defendants is located or where the infringing act or acts take(s) place. This means that Google can still be a joint defendant in secondary liability cases in China.

If the defendant cannot be located and it is difficult to conclude where the infringing acts took place, jurisdiction lies with the courts of the place where the server is located.

If it is not possible to determine the location of the defendant or the location of the server, the courts of the place where the rights owner is located will have jurisdiction.

CONCLUSION

China has a civil court system, without binding precedent, so decisions of courts may vary on similar facts. However, trends are now emerging from the cases, and in recent years search engines have generally been deemed not to be under an obligation to review trade mark use in keywords. Search engines like Baidu have successfully taken further steps to protect themselves from liability, such as stating in their ‘general policy’ that they will not be liable for failure to ‘censor’ keywords for trade mark infringement and that subscribers must ensure that the keywords they are employing do not infringe others’ IP rights. Their argument that they are not providing trade mark-related services has found favour with some courts.

As far as other service providers, such as trading platforms and social networks, are concerned, a notice and takedown policy may not be enough to exclude them from secondary liability where there are factors indicating actual or constructive knowledge. Sites like Taobao now have to be more proactive in taking action against repeat primary infringements on their networks, particularly in light of increasing criticism from affected brand owners.